The Timken Company Reports Strong First Quarter Results
CANTON, Ohio, April 27 -- The Timken Company today reported record first quarter sales of $1.35 billion, up 3 percent from the same period a year ago. First quarter net income increased 13 percent to $65.9 million, or $0.70 per diluted share, from $58.2 million, or $0.63 per diluted share, in the first quarter a year ago.
(Logo: http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO)
Excluding special items, earnings per diluted share increased 11 percent to $0.71 from $0.64 in last year's first quarter. Special items in the first quarter included manufacturing restructuring and rationalization charges that totaled $4.8 million of pretax expense, compared to $1.1 million in the same period a year ago.
"Our strong first quarter results reflect the ongoing strength of industrial markets and the performance of our steel business," said James W. Griffith, president and chief executive officer. "We are focused on accelerating profitable growth in industrial markets while repositioning our automotive portfolio to improve its earnings power."
During the quarter, the company:
- Set production and shipment records in the Steel Group;
- Continued major capacity expansions for industrial products at several
plant locations around the world; and
- Made further progress relating to Automotive Group restructuring
actions and manufacturing performance improvement.
Total debt at March 31, 2006 was $768.5 million, or 32.8 percent of capital. Debt was higher than the 2005 year-end level of $721.0 million due to seasonal working capital requirements. Net debt at March 31, 2006 was $737.2 million, or 31.9 percent of capital. The company expects to end the year with lower net debt and leverage than last year.
Industrial Group Results
The Industrial Group had first quarter sales of $503.9 million, up 7 percent from $468.8 million for the same period last year. Industrial end markets showed broad strength, with the highest growth in the aerospace, distribution and heavy industry sectors.
The Industrial Group's earnings before interest and taxes (EBIT) of $45.9 million were down 2 percent from $47.0 million in the first quarter of 2005. EBIT performance was negatively affected by higher manufacturing costs due to the ramp up of capacity additions and higher raw material and energy costs. While operating margins in the first quarter were lower than the same period a year ago, the company expects Industrial Group margins for the full year to improve over last year's levels.
Automotive Group Results
The Automotive Group's first quarter sales of $421.0 million were flat compared to the same period a year ago. Improved pricing was offset by lower volume due to decreased North American light truck production.
The Automotive Group recorded a first quarter loss of $3.1 million compared to a loss of $5.1 million for the same period a year ago. The first quarter of 2006 was negatively impacted by a $3.5 million increase in the company's accounts receivable reserve for automotive industry credit exposure. The Automotive Group's results benefited from improved pricing and manufacturing performance. The company expects improved Automotive Group performance throughout the rest of the year.
Steel Group Results
Steel Group sales of $468.2 million were up slightly from record sales in the first quarter a year ago. Increased pricing and higher demand in aerospace, service center and energy markets were mostly offset by lower automotive sales. First quarter EBIT was a record $71.1 million, up 12 percent from $63.7 million for the same period last year. Price increases, improved sales mix and increased manufacturing productivity accounted for the strong performance. The company expects the Steel Group profitability for the year to approach last year's record performance.
Outlook
The company, which recently increased 2006 earnings estimates, expects continued strength in industrial markets, particularly in aerospace, energy, mining and rail. Margin improvement is expected in the Automotive and Industrial Groups, and Steel Group margin performance should approach last year's record levels. Earnings per diluted share, excluding special items, are estimated to be $0.75 to $0.80 for the second quarter. The company recently increased its 2006 earnings estimate to $2.80 to $2.95 per diluted share, excluding special items.
Conference Call Information
The company will host a conference call for investors and analysts today to discuss financial results.
Conference Call: Thursday, April 27, 2006
11 a.m. Eastern Daylight Time
Live Dial-In: 706-634-0975
(Call in 10 minutes prior to be included)
Replay Dial-In through May 4, 2006:
706-645-9291
Conference ID: #5676501
Live Web cast: www.timken.com/investors
About The Timken Company
The Timken Company (http://www.timken.com/) keeps the world turning with innovative ways to make customers' products run smoother, faster and more efficiently. Timken's highly engineered bearings, alloy steels and related products and services turn up everywhere. With operations in 27 countries, sales of $5.2 billion in 2005 and 27,000 employees, Timken is Where You Turn(TM) for better performance.
CONSOLIDATED STATEMENT OF INCOME
AS REPORTED ADJUSTED (1)
(Thousands of U.S. dollars,
except share data)
(Unaudited) 1Q 06 1Q 05 1Q 06 1Q 05
Net sales $1,347,080 $1,304,540 $1,347,080 $1,304,540
Cost of products sold 1,056,658 1,031,566 1,056,658 1,031,566
Manufacturing
rationalization/Reorgani-
zation expenses - cost of
products sold 3,036 1,124 - -
Gross Profit $287,386 $271,850 $290,422 $272,974
Selling, administrative &
general expenses (SG&A) 173,875 163,630 173,875 163,630
Manufacturing
rationalization/Reorgani-
zation expenses - SG&A 377 409 - -
Impairment and
restructuring 1,040 - - -
Operating Income $112,094 $107,811 $116,547 $109,344
Other expense (4,771) (5,146) (4,771) (5,146)
Special items - other
(expense) income (308) 386 - -
Earnings Before
Interest and Taxes
(EBIT)(2) $107,015 $103,051 $111,776 $104,198
Interest expense, net (11,602) (12,102) (11,602) (12,102)
Income Before Income
Taxes $95,413 $90,949 $100,174 $92,096
Provision for income taxes 29,473 32,714 33,158 33,155
Net Income $65,940 $58,235 $67,016 $58,941
Earnings Per Share $0.71 $0.64 $0.72 $0.65
Earnings Per Share-
assuming dilution $0.70 $0.63 $0.71 $0.64
Average Shares Outstanding 92,942,082 90,804,936 92,942,082 90,804,936
Average Shares
Outstanding-assuming
dilution 94,010,483 91,871,363 94,010,483 91,871,363
(1) "Adjusted" statements exclude the impact of impairment and
restructuring, manufacturing rationalization/reorganization and
special charges and credits for all periods shown.
BUSINESS SEGMENTS
(Thousands of U.S. dollars) (Unaudited) 1Q 06 1Q 05
Industrial Group
Net sales to external customers $503,444 $468,449
Intersegment sales 435 398
Total net sales $503,879 $468,847
Adjusted earnings before interest
and taxes (EBIT) * (2) $45,885 $46,999
Adjusted EBIT Margin (2) 9.1% 10.0%
Automotive Group
Net sales to external customers $420,984 $420,265
Adjusted (loss) earnings before
interest and taxes (EBIT) * (2) ($3,141) ($5,100)
Adjusted EBIT (Loss) Margin (2) -0.7% -1.2%
Steel Group
Net sales to external customers $422,652 $415,826
Intersegment sales 45,530 51,605
Total net sales $468,182 $467,431
Adjusted earnings before interest
and taxes (EBIT) * (2) $71,136 $63,725
Adjusted EBIT Margin (2) 15.2% 13.6%
*Industrial Group, Automotive Group and Steel Group EBIT do not equal
Consolidated EBIT due to intersegment adjustments which are eliminated
upon consolidation.
(2) EBIT is defined as operating income plus other income (expense).
EBIT Margin is EBIT as a percentage of net sales. EBIT and EBIT margin
on a segment basis exclude certain special items set forth above. EBIT
and EBIT Margin are important financial measures used in the management
of the business, including decisions concerning the allocation of
resources and assessment of performance. Management believes that
reporting EBIT and EBIT Margin best reflect the performance of our
business segments and EBIT disclosures are responsive to investors.
Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to
Capital:
(Thousands of U.S. Dollars)
(Unaudited) Mar 31, 2006 Dec 31, 2005
Short-term debt $208,237 $159,279
Long-term debt 560,286 561,747
Total Debt 768,523 721,026
Less: cash and cash equivalents (31,285) (65,417)
Net Debt $737,238 $655,609
Shareholders' equity 1,572,222 1,497,067
Ratio of Total Debt to Capital 32.8% 32.5%
Ratio of Net Debt to Capital (Leverage) 31.9% 30.5%
This reconciliation is provided as additional relevant information about
Timken's financial position. Capital is defined as debt plus
shareholder's equity. Management believes Net Debt is more representative
of Timken's indicative financial position, due to the amount of cash and
cash equivalents.
Reconciliation of GAAP net income and EPS - Basic and Diluted as
previously disclosed.
This reconciliation is provided as additional relevant information about
the company's performance. Management believes adjusted net income and
adjusted earnings per share are more representative of the company's
performance and therefore useful to investors. Management also believes
that it is appropriate to compare GAAP net income to adjusted net income
in light of special items related to impairment and restructuring and
manufacturing rationalization/reorganization costs, Continued Dumping
and Subsidy Offset Act (CDSOA) receipts, and gain on the sale of
non-strategic assets.
First Quarter First Quarter
06 05
(Thousands of U.S. dollars, except
share data) (Unaudited) $ EPS $ EPS
assuming assuming
dilution dilution
Net income $65,940 $0.70 $58,235 $0.63
Pre-tax special items:
Manufacturing
rationalization/reorganization
expenses - cost of products sold 3,036 0.03 1,124 0.01
Manufacturing
rationalization/reorganization
expenses - SG&A 377 - 409 -
Impairment and restructuring 1,040 0.01 - -
Special items - other expense
(income): 308 - (386) -
Provision for income taxes (3,685) ($0.03) (441) $0.00
Adjusted net income $67,016 $0.71 $58,941 $0.64
Reconciliation of Outlook Information -
Expected earnings per diluted share for the second quarter and the
full year exclude special items. Examples of such special items include
impairment and restructuring, manufacturing rationalization/
reorganization expenses, gain on the sale of non-strategic assets, and
payments under the CDSOA. It is not possible at this time to identify
the potential amount or significance of these special items. We cannot
predict whether we will receive any additional payments under the CDSOA
in 2006 and if so, in what amount. If we do receive any additional CDSOA
payments, they will most likely be received in the fourth quarter.
CONSOLIDATED BALANCE SHEET Mar 31 Dec 31
(Thousands of U.S. dollars) (Unaudited) 2006 2005
ASSETS
Cash & cash equivalents $31,285 $65,417
Accounts receivable 784,920 711,783
Inventories 1,045,580 998,368
Deferred income taxes 108,649 104,978
Other current assets 113,317 102,763
Total Current Assets $2,083,751 $1,983,309
Property, plant & equipment 1,535,583 1,547,044
Goodwill 204,892 204,129
Other assets 259,585 259,252
Total Assets $4,083,811 $3,993,734
LIABILITIES
Accounts payable & other liabilities $524,228 $500,939
Short-term debt 208,237 159,279
Income Taxes 52,063 38,993
Accrued expenses 313,373 375,264
Total Current Liabilities $1,097,901 $1,074,475
Long-term debt 560,286 561,747
Accrued pension cost 236,481 246,692
Accrued postretirement benefits cost 518,047 513,771
Other non-current liabilities 98,874 99,982
Total Liabilities $2,511,589 $2,496,667
SHAREHOLDERS' EQUITY 1,572,222 1,497,067
Total Liabilities and
Shareholders' Equity $4,083,811 $3,993,734
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended
Mar 31 Mar 31
(Thousands of U.S. dollars) (Unaudited) 2006 2005
Cash Provided (Used)
OPERATING ACTIVITIES
Net Income $65,940 $58,235
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation and amortization 51,601 $54,100
Other 3,632 ($273)
Changes in operating assets and
liabilities:
Accounts receivable (70,316) ($82,242)
Inventories (37,855) ($75,771)
Other assets 314 ($11,870)
Accounts payable and accrued expenses (43,891) $34,898
Foreign currency translation
(gain) loss (6,101) 3,204
Net Cash Provided (Used) by
Operating Activities ($36,676) ($19,719)
INVESTING ACTIVITIES
Capital expenditures ($41,073) ($32,363)
Other 1,188 $288
Acquisitions - (6,556)
Net Cash Used by Investing Activities ($39,885) ($38,631)
FINANCING ACTIVITIES
Cash dividends paid to shareholders ($14,026) ($13,686)
Net proceeds from common share activity 6,132 $10,075
Net (payments) borrowings on credit
facilities 49,175 65,462
Net Cash (Used) Provided by
Financing Activities $41,281 $61,851
Effect of exchange rate changes on cash $1,148 ($2,700)
Increase (Decrease) in Cash and Cash
Equivalents (34,132) 801
Cash and Cash Equivalents at
Beginning of Period $65,417 $50,967
Cash and Cash Equivalents at End of Period $31,285 $51,768